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MALVERN, PA-Liberty Property Trust's net income for this year's third quarter dropped to $37.2 million, down from $46.9 million for the same quarter a year ago. Revenue rose to $177.8 million, up 14% from $155.7 million, and funds from operations grew to $76.4 million compared with $75.1 million in third quarter 2006.
The locally based REIT has nearly completed a three-year repositioning of its portfolio, said Bill Hankowsky, CEO, during a conference call. As a result, it has exited the Detroit market while entering Phoenix and Chicago. Following the third quarter, on Oct. 4, it acquired Republic Property Trust and almost simultaneously formed a joint venture with the New York State Common Retirement Fund, in which the latter assumed 75% of Republic's assets. The JV plans to invest up to $2 billion in the Washington, DC/Virginia markets.
As a consequence of all of these moves, Hankowsky said he expects lower sales activity in 2008, "since we've completed the bulk of our strategy," and acquisitions will also be lower. That is because the company will focus on development in the newly entered areas.
It is specifically targeting Houston, Phoenix, Florida, Chicago and the Baltimore/Washington corridor. In all, the REIT expects to invest nearly $400 million in 2008 in these five markets. That will include 13 industrial properties aggregating approximately 3.7 million sf, and eight office buildings aggregating 896,000 sf.
Liberty's in-service portfolio now totals 70.2 million sf. As of Sept. 30, it was 92.9% occupied, compared with 91.1% at the end of this year's second quarter.
The company now faces what Hankowsky referred to as "the Horsham effect." It results from a vacancy of 495,000 sf by two tenants in that Pennsylvania submarket that Liberty retained by developing new properties to accommodate their expansion needs. The largest is GMAC. The vacancy is a "significant issue," he said, because the Horsham market is skewed to financial service companies, an industry that is having problems, and the vacancies are in multiple building. Liberty expects some rolldown in rent rates in those locations and anticipates that lease up could take up to five years.
In all, Hankowsky expressed caution concerning the 2008 general economy. Tenants seem to be doing the same. In characterizing the current leasing environment in some markets, he said that although there was some pick up after Labor Day, companies are taking longer to analyze deals and evaluate long-term versus short-term agreements.
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